Smart Car

Classification and definition of the industry
The relevant industry for Smart Car is worldwide automakers because the target audience will be cost-conscious Americans. In 1999, the American car market was filled with many foreign imports that directly competed against and in some instances beat American domestic car producers.

Analysis of existing competitors
Today there are other low cost automobile manufacturers marketing to the United States. None, however, produce anything like SmartCar. The modular/custom design has no known peer in the U.S at this time. Daimler-Benz owns Chrysler so we can assume that at least one of the big three domestic automakers will probably not be directly competing against Smart Car.

It is not known whether Smart Car’s prospective competitors could create price competition by lowering prices enough to hinder its entrance in the market. In the event of the Smart Car’s introduction. There likely would be advertizing battles.

These battles might feature competitors stressing the need for accident safety. This would exploit a visual defect of Smart Car that is deeply seeded in the heart of many Americans: “I like good gas mileage and new trends, but I want to drive a vehicle that will allow me to survive a crash with an SUV.” Could Japanese automakers, GM, Ford, VW or Volvo create something similar to compete? Perhaps.

But that assumes they believe that America will support the design and concept in the first place. If they are skeptical, then it may be more advantageous to lower prices and the MPG on present models and stress crashworthyness. Americans tend to love differentiation through uniqgue customization.

This will be a major selling point for the Smart car to Americans. Government regulations may be a significant hindrance to its entry. Complex and strict government regulation often limits the entrance of competitors to a market and this may be true here especially with regard to crashworthyness. However, the Smart Car is presently accepted and sold in Europe. Also Chrysler corporation (owned by Daimler) would know something about how to comply with the existing rules.

The last question facing Daimler is whether logistically it could make a Smart Car in America. To do it, it would need a steady and geographically close supply of parts and modules, like it does in Europe. It is not known whether European suppliers will be willing to invest to make this new product happen, or conversely whether Smart Car can find existing suppliers in the United States.

Analysis of potential new entrants
If the Smart Car is introduced will any major automaker step up to make something similar? To make something similar, it has to be customizable as it is being ordered. It has to be produced quickly. It has to have low gas mileage. It has to have a supply of products that can be integrated into a variety of vehicles. General Motors is a competitor that has, to some degree, used these techniques in the past, in that its cars use interchangeable GM parts which lowers the overall price of the vehicles. It could do the same thing here and try a modular base.

The problem is that in 1999 GM is not doing as well against other automakers as it has in the past and may not be ready to provide the money and support for a such a large endeavor. Toyota is known for making good cars with decent MPG ratings. They too might be lured into competing against Smart Car. The down side for Toyota is that they really do not make inexpensive cars – they make higher priced but well made luxury cars.

Honda or other Japanese makers might be more willing to defend their “turf” of inexpensive, high MPG cars. Competition would probably come from a major automaker because of the economy of scale necessary and the need to have existing relationships with suppliers who would be willing risk something and try the new venture. High brand equity, experience and large financial resources also indicate a need for a major automaker as a competitor of Smart Car, if there is to be one.

Analysis of substitute products
In the automobile industry there are no known products that are as customizable as the Smart Car. The purchaser gets to design his own car from the factory. This is unique and hence there is no other known car that you can design from the ground up, or at least, you are expected to design from the ground up when you order it. Further the high MPG rating and space saving attributes are not found in most of today’s cars. But other goods might act as substitutes lowering the amount Daimler can charge for its vehicle. For instance, hybrid vehicles appeal to the environmental conscious person but presumably have more leg room.

The problem is that the price of Hybrids is prohibitive. There does not seem to be a low cost automobile made today that would be similar. As for other types of vehicles, a substitution might be the electric Cushman cars, or motor scooters. These however have important differences: the electric Cushman and motor scooter will only go up to a certain speed. The Motor scooter will not shield a person from the elements, like rain and snow. The same is true of the trendy motorcycle.

Harley-Davidson have made a fortune in marketing the “hog” to everyday Americans who want to be trendy, sleek, get good gas mileage and buy something customizably unique. This no doubt would be a substitute of sorts, but the down side is that elements are still a factor. Also public busing is a substitute as an economic alternative, but it has no trend appeal or customization factor. Would a person looking for cheap transportation simply choose to ride the bus instead of buy the Smart Car? We think not, because the value of directional independence is probably too highly valued.

Analysis of suppliers
This is a most troubling obstacle for the introduction of Smart Car in America. While there are many part producers in America, would they be willing to design their products around Smart Car and would they be close enough to make it cost efficient? Would these suppliers be able to integrate and produce an American Smart Car?

Moreover with the integration could the absence of one supplier shut down the process (and hinder profitability) if he was unable to comply. What collective threat could unified suppliers demand against the Daimler- Chrysler the manufacturer? Part and parcel of the strategy of the carmaker will be having a second supplier ready to replace the first when it is unable to produce or is heavy handed in its dealings. Here a giant automaker like GM could probably either own the supplier or keep it in line because of other contracts with other factories for other cars.

Threat of retaliation from a giant like GM may also keep its suppliers in line. Similarly Daimler’s ownership of Chrysler will tend to provide some suppliers who have an incentive to not drive prices up or purchase other suppliers in a monopolistic strategy for fear of losing their other contracts.

Analysis of buyers
The bargaining power of buyers in this instance are not likely to be significant. Here the purchasers are likely to be lower economic, environmental conscious, designer personalities. Unless a major competitor steps up to provide an alternative, the consumer here is stuck with only one choice. Being from a lower economic demographic certainly limits the bargaining power of the consumer.

But information that the Smart Car hurts the environment in production could cause a boycott or revolt of purchasers. Because the United States is a wealthy, developed country it is also possible that consumers may demand higher quality such as more safety features, faster speed or more power.

Summary of industry opportunities and threats The major threat facing Smart Car introduction in the United States is a company like General Motors or Ford. While Toyota does have some production in the U.S. it does not cater to cost-conscious consumers. Honda and other low cost Japanese automakers do cater to the cost conscious primarily through good gas mileage.

These companies, however, do not have the expanded local production network needed to establish a modular and integrated supply chain for production. Only GM and Ford would have the funds, experience and existing suppliers to effectively compete against Smart Car.

Implications for strategy development
One strategic possibility is to do a joint venture with Ford or GM (the automaker most poised to launch a competitive product) to produce the American Smart Car. This also assumes it would not violate antitrust laws. Another strategic choice would be to establish in the media and advertizing that the vehicle is more safe than the average high MPG car like the Honda Accord.

One big drawback for Smart Car is that it visually looks like a cracker box that could be compressed like a tin can. An aggressive media campaign would be needed to counteract this. The media campaign would also need to hype the individuality of the cars appearance and the multitude of choices. This would draw out the latent “designer” attribute of American consumers especially the young. Since they are assembled in a modular fashion their durability will be an issue that should be addressed in the advertizing campaign